Issuance of Bonus Shares

[faisal_ali]

As SAlam O Alaikum ,
i just want to ask that is there any fixed percentage of converting reserves into Capital (capitalization of reserves).......then one more problem is there that as we say that we issue bonus shares to protect our debts means no cash outflow for dividend.....so is it right?
Please reply me as soon as possible ....

Thanks,

Faisal

[kamranACA]

Dear,

Please see Rule 6 of the Companies (Issue of Capital Rules), 1996 in detail, if you have a book on company law. You can also download it from SECP's website using following link


http//www.secp.gov.pk/corporatelaws/pdf/Feb_02_1996.pdf


The company which has such reserves and intends to issues bonus shares is required to ensure that after issuance of such bonus shares, the free reserves should not be less than the 25% of total share capital (as increased by new bonus shares).

The bonus shares are also called as stock dividend. Since there is only a capitalization of reserves, it carries no payout in terms of cash.


Regards,


KAMRAN.

[faisal_ali]

Thank u so much for ur consideration.........one more querry is there that what other benefits are there of Bonus Issues expect retaining cash in the business and protecting creditors..?

Regards

Faisal .........

[kamranACA]

Dear,

I have replied your email. You can post that e-mail on this thread for others.

Regards,


KAMRAN.

[faisal_ali]

Reply from Kamran......to Faisal...

It's a long discussion that how much benefits stock dividend (bonus shares) have over the cash dividend. The major benefits for companies are to save cash outflow, increase market capitalization, conversion of reserves into capital in order to avoid monoply law issues and avoidance of dilution of shareholders.

The benefits to shareholders are to save tax as dividend is subject to tax and zakat while gains on sale of shares (as well as bonus shares) of listed companies are exempt from tax in Pakistan. Dividend's value cannot increase after these are declared but bonus shares of listed companies are marketable security and their prices can fluctuate and a wise holder can make further profits/gains out of it using market rise prudently.

All shareholders don't feel that their voting rights have been affected since every one gets same percentage of bonus shares on their existing holding. A long list of such points could be gathered.

You can go on following links to explore further. http//learning.vinnsworld.com/financial_management/bonus_shares.html
http//www.wisegeek.com/what-is-a-bonus-share.htm
http//www.slideshare.net/sagar_sjpuc/bonus-shares-presentation
http//ezinearticles.com/?Stock-and-Shares---Benefits-and-Gains&id=1358757 http//www.rediff.com/money/2004/apr/15perfin1.htm

I advise you to search such things on www.google.com, you will find so much of the desired info. Regards,
KAMRAN.